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nvc214
Level 1

Withdraw Excess Roth Contributions at a Loss

I realized that in 2019, I contributed too much to my Roth IRA.  The value of the IRA has declined since the contribution, so when I withdrew in 2020, I took out the excess contribution minus the associated losses.

 

I entered into TurboTax that I am planning to fully withdraw the entirety of the excess contribution prior to the tax deadline so they do not add the penalty.  However, given that I won't receive a 1099-R until 2021 (due to withdrawing in 2020), I'm unsure of what to enter in the "income" section? 

 

Should I be entering a "dummy" 1099-R so I do not have to file an amended return later on? If so, given that I am showing a loss, what do I enter in box 1 (excess contribution minus the losses, or just the excess contribution?) and box 2a (can I enter a negative number for losses or leave it at $0)? What codes should I use for box 7?

1 Best answer

Accepted Solutions
DavidS127
Expert Alumni

Withdraw Excess Roth Contributions at a Loss

No, don't enter anything in your 2019 taxes if you withdrew the excess Roth before the due date of your 2019 tax return.  And, because you have a loss for the period of time before the excess contribution was withdrawn, you won't need to amend your 2019 tax return when you get the 2020 1099-R because there are no earnings to report.

 

That 2020 1099-R will report the excess contribution minus the loss in box 1, a zero in box 2a and a code JP in box 7.    The JP code tells that IRS that it was the withdrawal of an excess contribution from a Roth by the due date, and the zero in box 2a tells the IRS there is no income to report.

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10 Replies
DavidS127
Expert Alumni

Withdraw Excess Roth Contributions at a Loss

No, don't enter anything in your 2019 taxes if you withdrew the excess Roth before the due date of your 2019 tax return.  And, because you have a loss for the period of time before the excess contribution was withdrawn, you won't need to amend your 2019 tax return when you get the 2020 1099-R because there are no earnings to report.

 

That 2020 1099-R will report the excess contribution minus the loss in box 1, a zero in box 2a and a code JP in box 7.    The JP code tells that IRS that it was the withdrawal of an excess contribution from a Roth by the due date, and the zero in box 2a tells the IRS there is no income to report.

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dancronin1
New Member

Withdraw Excess Roth Contributions at a Loss

Shouldn't there be some tax deduction for the loss as no deduction was taken for the excess contribution that was "lost"?

DianeC958
Expert Alumni

Withdraw Excess Roth Contributions at a Loss

No, there is not a tax deduction due to a loss in a retirement account for an excess contribution.

 

@dancronin1

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Tk365WA1
New Member

Withdraw Excess Roth Contributions at a Loss

This is confusion. Doesn't "excess contribution" imply that it does not belong to a retirement account, and that is why any earning from this asset is subjected to tax as ordinary income. Then, on the same token, why is there no tax deduction allowed for a loss? Can someone explain further. Thanks.

taxuser44
New Member

Withdraw Excess Roth Contributions at a Loss

TT is telling me that I am being assessed a penalty on the loss.  I said I had excess contributions of $6000 for 2019 and contribution withdrawn is $5638 when the losses are considered.  I am being assessed $22 on the $362 difference.  How do I enter it in the TT to not be taxed on it?  Thanks.

Critter
Level 15

Withdraw Excess Roth Contributions at a Loss

 
Critter
Level 15

Withdraw Excess Roth Contributions at a Loss

Ok ... you must indicate you removed the entire $6000 even though you will not have that much distributed ... this is the way the loss is taken into consideration.  

y2kroxy
New Member

Withdraw Excess Roth Contributions at a Loss

I have the same issue.  I have an excess contribution carryover into 2019 and when I withdrew the amount, there is a loss for the taxable amount (earnings).  Looks like there are 2 answers here.  Are both acceptable?

 

Solution 1

 

  The above Best Response says you don't have to report withdrawals at all because your Roth Gross Distribution of your withdrawal is not taxed and there is no taxable amount (earnings) because there is a loss on Box 2a.

 

Under Deductions & Credits Tab - Retirement and Investments - Update and go to

Enter Excess Contribution for Prior Years as zero for you and your spouse if applicable (you withdrew the excess contributions before the tax filing date and now have no carryover from prior years).

 

OR

 

Solution 2

 

If you have already received the withdrawal,

1) Create a substitute 2020 1099R with Codes P and J

2) Enter full amount of withdrawal  in Box 1 and zero in Box 2a.

 

Under Deductions & Credits Tab - Retirement and Investments - Update and go to

Enter Excess Contribution for Prior Years as zero for you and your spouse if applicable.

 

 

 

 

 

madmanc20
Level 3

Withdraw Excess Roth Contributions at a Loss

Doing elderly mother's taxes. Slightly different case

 

- Contributed $7k ROTH IRA for 2019 taxes before 4/15/2020 deadline and filed before deadline

- Mistakenly processed an excess withdraw for this contribution. Earnings was a loss due to bearish market  (Was doing a 2020 RMD rewind at the same time and got the years crossed)

- Now have a 2020 1099-R for this withdraw code 8J showing excess withdraw

 

What can I do?

 

- Calling Roth IRA admin to see if can change this withdraw to normal Roth IRA withdraw.

- Anything can be done by Turbotax?

poshskier
New Member

Withdraw Excess Roth Contributions at a Loss

Will the Taxpayer receive a 1099 with the capital loss of the decreased value of the account or is that just a loss that is not accounted for?

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